Low legacy sales drag Zhone’s revenue

Zhone Technologies missed its revenue and earnings expectations for the first quarter following a drop-off in sales of its legacy equipment that the company attributed to a combination of seasonality and a customer migrating from Zhone’s legacy to next-generation gear.

The broadband loop carrier vendor reported total revenue of $52.7 million for the first quarter, missing its previously voiced expectations of $54 million to $56 million. Zhone’s legacy products business, which contributed $19 million last quarter (or 36% of total revenue), contributed less than $15 million (or 28% of total revenue) this quarter. Sales of its multiservice products grew 11% sequentially to $33.2 million in the first quarter, accounting for 63% of the quarter’s revenue after contributing only 56% last quarter. And sales of Zhone’s optical products “rebounded” to $4.9 million from $4.4 million last quarter.

In the company’s earnings conference call late Thursday, Zhone executives said they expect legacy products to become an increasingly small part of their business this year, with sales of legacy products either flat or in slight decline while sales of next-gen multiservice gear grow at a double-digit pace.

The company expects second-quarter revenue between $55 million and $57 million, a sequential increase of 4% to 8%. And although the first-quarter revenue shortfall resulted in pro-forma earnings before interest, taxes, depreciation and amortization (EBITDA) of $158,000 rather than the $1 million to $2 million the company was expecting, Zhone expects to report between $2 million and $4 million pro forma EBITDA in the second quarter.

“We had profitability this quarter and last quarter,” Chief Executive Officer Mory Ejabat said. “When are we going to get to [generally accepted accounting principles] profitability? Our goal is to get there the second half of this quarter. I mean this year.”

Zhone is also hoping to scoop up customers of Motorola’s multiservice access platform--the one it obtained through the 2003 acquisition of NextLevel--after Motorola announced in February it would close the California plant where that product was developed. At the time, Motorola said it was moving development work on that product to its Massachusetts offices, home of another acquired access vendor, Quantum Bridge. But Ejabat maintains Motorola has given indications it will develop the product no further, and Zhone has already engaged several NextLevel customers.

“The existing [NextLevel multiservice access] product is ATM-based,” Ejabat said. “All those customers are asking for IP-based products. Our product fits right into their network.”

When asked if Zhone was currently pursuing mergers or acquisitions with other vendors, Ejabat said, “No, not at this point. It’s not in our plans.”